Act on carbon price, UK told

02 March 2010

A stronger and more stable carbon price is required before there can be new nuclear investment in Britain, a London conference heard today.

The opening session of Nuclear New Build 2010 heard calls from two of the three proponents of new reactors in the UK for government action to give clearer incentives to low-carbon generation. The major new conference was organised by the Nuclear Industry Association, the Nuclear Institute and the Institution of Mechanical Engineers.

Speaking as EDF Energy's head of new build, Humphrey Cadoux-Hudson said the current price of carbon as set by the European Emissions Trading Scheme (ETS) is "unsustainably weak" and compromised as an incentive. He said there was a need for "timely action" and there was no reason why the government could not act unilaterally to introduce a floor price for carbon dioxide emissions.

The need for more certainty was echoed by Alan Raymant of Horizon Nuclear Power, the joint venture between EOn and RWE. Raymant said his company did not believe current market conditions were right for private investment in nuclear power. He quoted energy and climate change secretary Ed Miliband in a recent Times article which called for "a more interventionist energy policy" and the CEO of market regulator Ofgem, who said leaving the current set-up was "not an option".

In Horizon's view, new nuclear build must provide a worthwhile return for its shareholders and this is critical to the case for the final decision to build. For Horizon this key decision will come around 2013, but EDF Energy must make up its mind next year. Cadoux-Hudson warned that a decision against build would be "enormously damaging" for EDF Energy and the UK.

However, the keynote speech heard under-secretary for energy David Kidney reiterate the longstanding government line that plans for nuclear build have to "stack up in their own right" in terms of finance. Although Kidney said the government had not yet begun thinking about changes to carbon trading or pricing, the situation is actually under review at departmental level.

In a panel debate, Malcolm Wicks, now prime minister Gordon Brown's special advisor on international energy, said that subsidy for nuclear was out of the question, but did not rule out changes to other incentives for low-carbon power in general. "Most people," he said, "that look at the ETS and the carbon price are disappointed at how low it is. This is a concern for all sorts of clean and green technologies and the government, the Department of Energy and Climate Change and the Treasury are reviewing this whole territory." He warned that any change could take 18-30 months to bring into law.

One example among a number of current market-altering mechanisms is the Climate Change Levy, meant to dissuade generators from using fossil fuels. This was introduced before the ruling Labour Party's change to support nuclear and currently penalises nuclear energy as if it were as environmentally damaging as fossil fuels. An announcement on the government's review is due to come alongside the country's Budget - probably in mid to late March.

Another announcement is also due from opposition leaders the Conservative Party. Within weeks, and certainly before the general election set for May, the party is to release an energy paper. There will be support for nuclear as an essential ingredient in the future low-carbon generation mix and "no going back on the idea of there being no subsidies for nuclear," said the party's Julie Kirkbride.

The other main force in UK politics is the Liberal Democrats, which officially opposes nuclear power and could request to block it if negotiating alliances after a close election. It would be extremely unlikely for Labour to make this concession, but the possibility that the Conservatives might take this option to win power remains a concern for the UK nuclear industry.